Product sales -10.1% y-o-y

Positive gross margin trend continues

New credit facility could drive further M&A’s

Mainstream segment remains weak
Like previous quarters, products sales were weak (-10.1% y-o-y), mainly due to increased competition in the mainstream segment (non-senior users), especially in Germany and the Nordics. We have previously highlighted this as an area of concern, as it also seems like mainstream constitutes of a fairly big % of sales. Management reiterate that it is not a focus segment, and that the company remains the market leader in phones for seniors. In recent quarters, smart phone sales have remained strong, although in Q2, this segment also reported a weak number (22% to 17% of products sales y-o-y). On the positive side, services had a strong quarter, as sales grew 41.5% to SEK 64.4m (-2% vs ABGSC est.). Growth was partially acquisition driven, albeit organic growth amounted to an impressive +25.5%. Gross margin remains strong, mainly due to positive FX effects as well as some efficiency improvements. We also notice that the no. of employees (adj. for Welbeing) has dropped by 39 q-o-q. These two factors resulted in an EBIT margin of 6.2% (4.2% Q2’17).

Intensified service conversion through M&A
Even though products sales were weak, Q2 reported a strong order book, which, in conjunction with easier comparatives, results in no dramatic adjustments. Furthermore, we like the acquisition of Welbeing, which strengthens Doro’s grip in the fragmented market (see page 4). We believe that it will be a driver for Doro Care going forward; thus raise sales by +2.3% for ‘19e. The overall gross margin was strong, and we adjust estimates accordingly (+3.6% ‘18e and +3.4% ’19e). Our sales and EBIT forecast for ‘18e of SEK 1.96bn & 129m is also in conjunction with management’s new guidance of 1.9-2.1bn and 105-135m.

5.6x EV/EBITDA ‘18e
Doro states that its credit facility could drive further M&A, which we have not factored in at the current ‘18e estimate of 5.
...

info@introduce.se (Introduce.se)

ABG Sundal Collier - Introduce.se